Raghuram Rajan ends his term as the RBI governor in September this year. Today is his last monetary policy review. Rajan has been a governor who has brought India global fame, not only for his sound monetary policy, but also for his ability to stabilise the Indian rupee and instill confidence in the minds of investors. Rajan’s exit has not been without controversy, with BJP MP Subramanian Swamy targeting the RBI governor, blaming him for keeping interest rates high and damaging business prospects of small and medium enterprises in the country. Many feel that the government’s inability to check Swamy’s continuous attacks on Rajan, may have led to his decision to not continue beyond the first term. However, PM Narendra Modi has been all praises for the governor, even calling him a “good teacher”. As Rajan announces his last monetary policy, we asked analysts to list his key achievements during his three-year tenure:
1) Stabilising the rupee: Checking rupee’s volatility has been Rajan’s biggest achievement, feel analysts. Says DK Srivastava, Chief Policy Advisor at EY India, “In my opinion what the RBI did for the rupee was effective management of the rupee within the range that it was comfortable in. There was no particular level that was targeted. Whenever RBI thought that the rupee was depreciating beyond its comfort level, it sold forex reserves. So in that sense, effective buying and selling of dollars was what contained the volatility in the rupee.”
Agrees Shubhada Rao, Chief Economist at Yes Bank, “Rajan has anchored expectations very well. The fact that inflation’s trajectory corrected under Rajan, came down by 300 to 400 bps, and the monetary policy framework that he has decided on – all these factors have made the rupee attractive in the global market.”
Also read: This is Raghuram Rajan’s biggest achievement on rupee
2) Credit policy transparency: Dr Arun Singh, Lead Economist at Dun & Bradstreet India tells FE Online, “With the monetary policy framework and even through his policies, Rajan managed to get transparency into the system of credit policy. People and the markets were able to anticipate the policy movement, unlike earlier where the central bank would take markets by surprise with move on key rates. RBI’s candidness on inflation targeting led to better communication.”
3) Banking sector: Rajan brought about broad-based banking and with the issuing of new licences, he ensured that the banking sector penetration is decent, says Yes Bank’s Shubhada Rao.
Srivastava of EY India is of the view that Rajan was bold enough to get banks to recognise their NPA mess. “He brought in transparency in dealing with the NPA mess. “While many would say that the NPA issue was dealt with late, I feel that to even recognise and take corrective steps in this direction is a big thing. Yet another area in the banking sector where Rajan deserves credit is to bring innovative banking through expansion and licensing,” he says.
4) Forex reserves: Sajal Gupta, Head Currencies at Edelweiss Securities says, “On the forex reserves front Rajan, opened up the debt limit for FIIs and this greatly assisted in accumulation of forex reserves. He has also very recently opened up the participation of FIIs in unlisted bonds. All these are things that help attract inflows.”
Rao of Yes Bank also credits Rajan for building the forex reserves. “He built a war chest that helped check the slide of rupee, even after events like Brexit.
5) Holding on to rates and emphasis on transmission: Singh of Dun & Bradstreet India is of the view that Rajan’s focus on the transmission of rate cuts, rather than rate cuts per se, was great. “Otherwise, even with RBI cutting rates, banks would fail to pass on the benefit to customers. But, Rajan time and again stressed on the need to find and build an effective system for transmission of rate cuts,” he tells FE Online.
WATCH: Rajan’s last monetary policy, interest rates unchanged
Adds Srivastava of EY India, “Holding onto the RBI policy on rates and inflation, despite immense pressure to cut key rates is one of the biggest achievements of Raghuram Rajan. Keeping the liquidity situation comfortable, without cutting rates is yet another commendable move.”
